Kinder Morgan Energy Partners (KMP) CEO Rich Kinder on Q3 2014 Results – Earnings Call Transcript

Kinder Morgan Energy Partners, L.P. (NYSE:KMP)

Q3 2014 Results Earnings Conference Call

October 15, 2014; 04:30 p.m. ET


Rich Kinder – Chairman & Chief Executive Officer

Steve Kean – President & Chief Operating Officer

Kim Dang – Chief Financial Officer, Vice President of Kinder Morgan G.P., Inc.

Tom Martin – Vice President & President, Natural Gas Pipelines Group

Jim Wuerth – Vice President & President of CO2 Division

Ian Anderson – President of Kinder Morgan Canada


Carl Kirst – BMO Capital Markets

Ted Durbin – Goldman Sachs

Mark Reichman – Simmons & Co.

Darren Horowitz – Raymond James & Associates

Craig Shere – Tuohy Brothers

John Edward – Credit Suisse

Becca Followill – U.S. Capital Advisors

Shneur Gershuni – UBS

Jeremy Tonet – JP Morgan


Welcome to the quarterly earnings conference call. All lines have been placed on a listen only mode until the question-and-answer portion.

Today’s conference is also being recorded. If you have any objections, you may disconnect. (Operator Instructions).

I would now like to turn the call over to Mr. Rich Kinder, Chairman and CEO of Kinder Morgan. You may begin.

Rich Kinder – Chairman & Chief Executive Officer

Okay, thank you Holly and welcome to everybody to our earnings call. As usual, we’ll be making statements within the meaning of the Securities Act of 1933 and the Securities Exchange Act of 1934.

I’ll make some introductory remarks, then I’m going to turn it over to Steve Kean, our President and Chief Operating Officer who will talk about operations and our project backlog and then we’ll go to Kim Dang, who will take you through the numbers. And I want you to treat her respectfully, because we just named her as a Member of Office of the Chairman today. So I know you will keep that in mind.

Let me talk about first quarter to third quarter performance. There is really not a lot to report on the quarter or on our projections for the balance of the year. Steve and Kim will take you through it in more detail, except that we do now expect to exceed our $1.72 budget target for dividends at KMI and we expect to meet our targets at KMP, KMR and EPB.

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Our natural gas pipelines, particularly the inter-state portion of our group leading the year with a strong performance throughout the year. As an indication of the increased demand for transportation on our natural gas pipelines we now have new singed and pending long term contracts since December of last year, December ‘13 of 6.4 bcf/d and to put that in perspective, that’s about 9% of the total U.S. gas demand and that number, that 6.4 number is up from 5.3 at the end of second quarter. So we continue to make real progress in attaching new throughput agreements to our system. Steve will go into more detail on the operating performance across all of our segments.

More significant for the future probably is the size of our backlog of new projects. We went from 17 billion in backlog at the beginning of the quarter to 17.9 billion at the end of the quarter, even after deducting about $1.1 billion of projects that were completed and placed in service during the quarter and thus removed from the backlog. The third quarter additions include some sizeable projects that Steve will discuss in detail.

To me this growth demonstrates once again the demand from mid-stream energy infrastructure in North America and the size of our backlog, together with the enormous footprint of our Pipeline and Terminal assets is the best predictor of future growth at KM in my judgment.

Now, let me also update you on the transaction in which KMI is proposing to buy the outstanding units and shares in KMP, KMR and EPB. We have now received all necessary regulatory approvals, except our registration statement has not yet been declared effective by the SEC. We except to announce the date of our shareholders and unit holder meetings in the near future and we’re hopeful we will be able to close by Thanksgiving.

To remind you, we expect the resulting consolidated KMI to pay a dividend of $2 dollars in 2015, that’s an increase of 16% over the $1.72 budget target for ’14; to increase that dividend by 10% a year through 2020 and to generate coverage in excess of $2 billion above these increased dividend payments.

And with that I’ll turn it over to Steve.

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Steve Kean – President & Chief Operating Officer

All right, good afternoon. So I’m going to review the business segments focusing on year-over-year performance, Q3 of last year to Q3 of this year of each one and the key developments in each segment. Starting off with gas, a very good year. KMP, their earnings before DD&A is up $53 million or 9% year-over-year and we continue to see strong performance at TGP and EPNG, as well as the assets that we picked up in the Copano acquisition.

Transport volume on the KMP assets is up 10% year-over-year. At EPB the DCF is up $23 million or 8% year-over-year, really due to the dropdowns of our interest in Gulf and Ruby that were announced in April this year.

The gas group added on a net basis $100 million to the project backlog. That’s after putting into service about $270 million. The biggest piece of that was the expansion of our Huston Central plant and some associated pipe expansions around that asset for about $250 million.

We had a net add at TGP of about $175 million, about the same number at the mid-stream assets and those were really both associated with LNG markets, as well as Mexico, so a net add of $100 million to the backlog in the gas group.

We continue to see strong demand for natural gas infrastructure as Rich mentioned. We’ve seen it in the shale’s, LNG exports and Mexico. Our assets are well positioned for all of that as evidenced by the 6.4 Bcf of signup that we’ve had. So the trends that we’ve been talking about for a long time are now turning themselves into long-term firm transport commitments.

And that’s just mostly the supply side and some LNG and Mexico exports. That’s before we’ve really seen the demand side of this picture with power conversion in the U.S. and industrial and PetChem. on the U.S. Gulf Coast. And to illustrate that point, if look at our backlog you don’t see anything in there, for those developments yet to come just yet, but we can see them over the horizon.

If you break our backlog out in the gas group, call it producer push projects are about $800 million out in the shale’s. What I’ll call first party LNG, which is really the Elba Island and related transportation expansions, about $1.6 billion. What I’ll call second party LNG, which is where we’re investing in infrastructure to serve other peoples LNG facilities is another $750 million.

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Mexico is over $900 million and processing and gathering primarily in the Eagle Ford is about $300 million, so that’s about 4.4 or so of the total backlog and you can see we still got more to come with these other developments. Still haven’t seen the full effect of power and industrial PetChem. on the U.S. Gulf Coast and I think we’ll also see some additional LNG and all of those things are things that we are well positioned for.

You would also think with all of this demand side growth and what’s happening on the supply side, that we are going to see an enhanced value on our storage assets as well and that is I think also is still to come.

And also a remainder, the backlog that we have in the gas group does not yet include Northeast direct of Gulf LNG projects, which we continue to actively work. So again, more to come on our well positioned gas network.

Turning to CO2; earnings before DD&A is up $14 million or 4% year-over-year. On the volume side SACROC is up 12%, a huge performer. NGL’s are also up 7% year-over-year. Yates is down a little bit, 3.4%. Katz volumes are up 27.3% and Goldsmith is basically flat. Overall volumes on a net basis are up 9% year-over-year and really great performance in SACROC with nearly every program that we’ve put in place there for 2014, exceeding our expectations.

The disappointment from a production standpoint is Goldsmith, which is essentially flat year-over-year. I would characterize the issues here as being less about geology then they are about operations. The oil is there, it’s down the well bore, but we’ve had outages at the wells and outages associated with our pumps there. These are similar, but not identical problems that we have solved in other places, including SACROC, so we’ve got a full court press to turn things around here.

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